The Trump rally is still baffling analysts, but it seems to be going strong and there is no signs of it coming to an end in the immediate future. In fact, markets are showing that there might be much more upside to it than previously thought. The Dow Jones has been breaking records now consistently for a few months. The latest one came on Wednesday, when the Dow broke the 21,000 point barrier on the back of Trump’s speech to congress.
The Trump Rally Paradox
On the surface, markets should not be soaring like they are under an embattled administration like Trump’s. This is due to the fact that according to most estimated, if President Trump delivers on all of his campaign promises, the fiscal deficit will increase. This has the potential to choke economic growth, by increasing default risks. Investors should also be weary of Trump in theory, because he is quite a riddle in terms of trade policy. Nevertheless, it seems that markets are brushing this aside, focusing on the positive aspects of the administration – like deregulation – and disregarding potential negative impacts.
As a result, the markets seem to be poised to advance further, even when Trump’s actions or words seem erratic or controversial. The true paradox is to see markets respond in a similar fashion to a completely different facet of President Trump. Most people would agree that during his first speech to congress, Trump looked more presidential and less controversial. He stroke a more conciliatory tone. Nevertheless the markets responded the same way they did when he was being perceived as a brash, volatile president.
Will the Dow Jones Reach 22,000 Anytime Soon?
This forces analysts to consider the possibility that the Trump rally depends much less on the president than previously thought. After all the US economy has re-built its bases after the 2008-09 economic crash and consumers seem to be shedding their fears slowly. That coupled with the assumption that the president might be dissuaded from pursuing less trade friendly policies, could be adding fuel to the rally. If investors keep up their confidence in the system and continue to act in a paradoxical manner, the Dow Jones could well reach the 22,000 point mark. That could happen sooner than what anyone thinks.
There is a Genuinely Objective Upside
If investors keep on showing their penchant for optimistic behavior despite any barriers that politicians might throw in their way, then the Trump Rally will have a genuinely objective upside. The risks are still higher than what it seems because the rally can unravel at any given moment for any given reason. After all, as much as analysts try to zero-in on a reason for it to continue, they haven’t found one really. This means that investors should tread with caution and tighten their hedging but they should definitely entertain the possibility that the rally may not be as irrational or paradoxical as it looks.